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Fading earnings momentum, a low real yield, and an expensive currency point to potential vulnerability says the brokerage
After a record-breaking rally in the recent weeks, Indian shares are ‘unattractive,’ UBS AG has said citing pricey valuations. In its Asia Pacific strategy report, the firm ‘double upgraded’ Chinese stocks to overweight, according to a report in The Economic Times.
The report quoted UBS as saying that high valuations with fading earnings momentum, a low real yield and an expensive currency point to potential vulnerability for India as the US Federal Reserve tapers its asset purchases.
The report quoted brokerage saying that there is less chance of an economic resurgence in India this year, and its stocks have already outpaced Indonesia by 31% year to date.
Indian equities
On October 18, the MSCI India Index, which had gained more than 17% in the previous three months, reached an all-time high. The MSCI Emerging Market Index fell 1.3% during this time span, while the MSCI World Index climbed only 4.4%.
The report quoted UBS as saying that the relative valuation of Indian stocks to ASEAN, two regions with comparable development trends and periodic perceived macroeconomic concerns, appears too large to justify.
Domestic investors have mostly driven the recent increase in the Indian market, as foreign portfolio investors have sold shares worth Rs 9,050 crore since July 1.
The Nifty 50 index in India is presently trading at 24.80 times trailing 12-month earnings, compared to a five-year average of 20.38 times and a ten-year average of 18.54 times. While the Nifty has corrected 1.3% from its all-time high on Monday, the Nifty Midcap 100 and Smallcap 100 indexes have lost more than 4% from their all-time highs in the last two days.
UBS said India, Australia, and Taiwan are the least preferred markets, while China, Singapore, Indonesia, Malaysia, and the Philippines are the most attractive.
India has been the third-best performing market so far this year after Russia and Australia. The Nifty index has surged 31% since January 1.